Marc Dreier’s Crime of Destiny

PICTURE OF REMORSE Marc Dreier under house arrest May 5, 2009, when he still owned his Manhattan penthouse, but shared it with security guards who made sure he stayed put.

Great things were always expected of Marc Dreier, and he expected them for himself. He needed the hotshot litigating career and a life stuffed with rich men’s toys. He needed a Hamptons beachfront house. Thus began a four-year Ponzi scheme—involving audacious impersonations and $380 million stolen from 13 hedge funds—which all unraveled just days before the Madoff scandal broke, bringing the 59-year-old attorney a 20-year prison sentence. In conjunction with CBS’s 60 Minutes, Bryan Burrough gets Dreier’s blow-by-blow account of what it’s like to turn bad.

The sun-drenched apartment, perched high in a Midtown Manhattan building looking down on the famed restaurant Le Cirque, is as luxurious as one would expect for space that cost $10.4 million. Lined with floor-to-ceiling glass, the living room features low divans wrapped in rich golden fabric. On the vast outdoor deck, as big as many apartments, the views stretch north and east, all the way across Long Island Sound toward Connecticut.

Yet even a casual visitor would notice that something is amiss. Dozens of bare hooks line the white walls; all the paintings are gone. Boxes of paperwork litter the floors. In the kitchen, the knives are missing. Bags of trash overflow. The dining-room table is strewn with containers of half-eaten Chinese food. In an adjacent nook, an older man slumps on a sofa watching CNN on a wall-mounted flat-screen television. Unpaid bills are piling up. As nice as this apartment once was, it now feels like a $10 million dorm room.

That’s because it’s a jail. Sort of. On the orders of a federal judge, its owner is living here under house arrest. That man watching CNN? He’s a retired F.B.I. agent, one of several who rotate through all week long. One morning I arrive after 11. The owner, the man the security guards are watching, is just getting out of bed.

His name is Marc Dreier, he is 59 years old, and his life is over. A smallish, tightly wound man with red, stubbled cheeks and a silvery pompadour, Dreier was once a hotshot New York litigator with multi-millionaire clients. Then he stole $380 million from a bunch of hedge funds, got caught, and was arrested in Toronto under bizarre circumstances, having attempted to impersonate a Canadian pension-fund lawyer as part of a scheme to sell bogus securities to the big American hedge fund Fortress Investment Group. Now, as he wanders into the living room rubbing sleep from his eyes, Dreier is waiting for the judge to tell him just how many years he will spend in prison.

As he takes a seat across from me, he is wearing a loose-fitting black sweater and black jeans. And then, in the lifeless monotone of a death-row inmate, Marc Dreier begins to tell his story.

Maybe you remember the Dreier case. Or maybe you don’t, given that just five days after Dreier’s arrest, last December, federal authorities announced the discovery of the largest Ponzi scheme in U.S. history and the detention of its mastermind, Bernard Madoff; ironically, you can just glimpse a corner of Madoff’s 53rd Street headquarters from Dreier’s kitchen windows. Once the Madoff scandal hit, Dreier all but vanished from the headlines. If he’s remembered today, it’s probably for the details of his arrest, the sheer audacity of impersonating that Toronto attorney inside the man’s own offices.

The Canadian incident turned out to be the tip of one very dirty iceberg. Re-arrested upon his return to La Guardia Airport, Dreier was revealed to have defrauded more than a dozen hedge funds, not counting the $45 million or so he stole from his own clients’ escrow accounts. His 270-lawyer Park Avenue firm, Dreier L.L.P., imploded practically overnight. He was indicted, thrown in a jail cell, then allowed to spend several months under house arrest at his 58th Street apartment. In June, after our interviews, he pleaded guilty to all charges. A judge sentenced him to 20 years in prison. As of this writing, he is in the Metropolitan Correctional Center Chicago.

Dreier’s downfall left half the New York bar scratching their heads. Here was a lawyer who seemingly had every toy a middle-aged American man could want: not one but two waterfront homes in the Hamptons, condominiums in the Caribbean, a 120-foot yacht moored in St. Martin, a $200,000 Aston Martin, an ocean­side condominium in Santa Monica, plus his own Los Angeles sushi restaurant, not to mention a collection of modern art that included works by Warhol, Hockney, Picasso, Matisse, and Lichtenstein.

There were all kinds of theories, though, most assuming that Dreier had resorted to theft to cover losses at his firm, or perhaps to support his outsize lifestyle. Some veteran trial attorneys, however, noting how addictive the adrenaline of courtroom combat can be, came up with a novel notion: Dreier, they speculated, did it out of boredom. “People caught in these situations—Madoff, whoever—they all share a similar profile,” muses David Keyko, a partner at the Manhattan law firm Pillsbury Winthrop Shaw Pittman. “At some point this stops being about the money. They’ve got enough money. At some point this becomes about the thrill of getting away with it.”

There was at least one other theory you heard, mostly from those who grappled with Dreier in court. “You know everyone’s theory about Dreier is that this guy went bad because he overreached financially, that he got in over his head,” says Jerome Katz, a Ropes & Gray attorney, who had clashed with Dreier in the past. “I’m sorry, but I don’t buy that. I think this guy has always been bad.”

They were all wrong. What no one understood is something that Dreier, the first of the Madoff-era criminals to tell his story publicly, explains here for the first time. This wasn’t the case of a man who had everything going bad, Dreier makes clear. What no one understood is that everything Dreier owned—the cars, the mansions, the yacht, the sushi restaurant, even the law firm itself—was made possible by his crimes. This was a man who went bad to have everything.

I Confess

Back in April, two months before his sentencing, Dreier consented to a wide-ranging set of interviews with Vanity Fair and 60 Minutes. (The only condition was that publication be held until after his sentencing.) Talking with Dreier was like talking with a dying man. During our conversations in that sunny living room above Le Cirque, he was all but a zombie, breaking a smile exactly once during five hours of discussion, a wry chuckle as he described what it was like occupying a darkened prison cell with a urine-covered floor and a triple murderer. Dreier’s blue eyes, dull and lifeless, seldom made contact with mine. His speech, marred by a slight lisp, was formal and repetitive, almost stilted, as if he had rehearsed exactly what he wanted to say.

“Obviously, people who knew me are puzzled by what I did,” Dreier says, “and I hope talking to you helps begin to explain it. I ob­viously am sincerely, deeply remorseful and sorry about what I did, and hopefully an interview can convey to people I hurt how remorseful I am. That’s the truth. I am deeply sorry. And the frustrating thing is not to be able to say that.” He wants the world to see he is not some comic-book villain, he says, that he was once a decent man who found himself swept up in a culture that rewards material gains. All he ever wanted, Dreier says, was to be viewed as a success, and when he wasn’t, he began to steal to get the things he craved.

“Even a good person can lose their way,” he goes on. “This is not just a story about someone who engaged in a significant crime, but the less dramatic point, you know, is people who are following a certain path, who go to the right schools, who do the right things You can still lose your way. In a terrible way. As I did.”

Marc Stuart Dreier was born in 1950 and grew up in Lawrence, Long Island, one of the fabled, affluent “Five Towns.” His father was a captain in the Polish Army who, assigned to the New York World’s Fair in 1939, found himself marooned in America by the start of war. He stayed, married, and went on to found a string of movie theaters in Manhattan and on Long Island. The eld­er Dreier retired to Florida in the 1970s, but restless there, he started a second string of theaters that Marc’s brother, Mitchel, runs today. Dreier describes the family as close and loving, which sounds right; they paid the $70,000 a month it cost for private-security men during his house arrest.

From childhood, Dreier was a golden boy. At Lawrence High he was head of the student council and voted “Most Likely to Succeed.” He was very smart, a good talker, and from an early age, perhaps unsurprisingly, he wanted to become a courtroom attorney. Talk to those who have known him the longest and the one fault some cite was Dreier’s mercenary streak. Marc Dreier was in it for Marc Dreier. He was charming, ambitious, hardworking, and determined to excel. Everyone who knew him, especially his parents, predicted great things.

“I [grew] up experiencing a lot of success, even in elementary school,” Dreier says. “I had always been a leader. Things just came easy to me. People expected I would achieve real success in my life.”

He got into Yale, earned a degree in 1972, and went on to Harvard Law School, where he graduated in the middle of his class in 1975. He was hired as a litigation associate at the white-shoe Manhattan firm of Rosenman & Colin, where he fell under the supervision of its litigation chief, Max Freund, who was also the firm’s co-chairman. Dreier started out carrying Freund’s briefcase, then graduated to “third chair” in Freund’s trials, then moved up to second chair. His baptism by fire came during years of work alongside Freund in the so-called Betamax case, in which the plaintiffs, Disney and Universal Studios, sued Sony, Rosenman’s client, makers of the Betamax videocassette player, for copyright infringement. By the time the trial finally wrapped up, in 1979, Dreier was known within the firm as “Max’s boy.” As they had since he was a child, people predicted great things.

Into the 1980s, Dreier lived alone in a sadly neglected Upper East Side apartment, grinding through 100-hour weeks working for Freund. A fervid fan of the New York Mets, he pitched on the Rosenman softball team—one of his few outside pursuits. In 1985, to no one’s surprise, he made partner. At the same time, he began dating an attractive Rosenman associate named Elisa Peters. They married in 1987, honeymooned in Italy and France, and later had two children, a boy and a girl, both now in their teens.

But if Dreier’s career was thriving, Rosenman wasn’t. The old-line firm had lost its most important client, CBS, on the day Dreier joined, in 1975, and some said it never recovered. Older lawyers jealously guarded their clients, frustrating their younger colleagues, many of whom, especially the litigators, began to grow restless. Some attorneys began to leave. (Rosenman eventually merged with a larger firm in 2002.)

Dreier, for one, found making partner didn’t bring him the money or the responsibility he felt he deserved. “Life didn’t change as much as I would’ve wanted it to change,” he says. “I was disappointed the position didn’t mean everything I had hoped for. I guess you would say I didn’t get either the financial success or the recognition I would’ve liked.”

Just as Dreier’s eye began to roam, he received a job offer from Fulbright & Jaworski, the massive Houston firm, which was opening a New York office. Dreier leapt at the chance to head Fulbright’s New York litigation section. The move meant more money and more recognition, and Dreier hoped he would be representing Fulbright’s big Texas clients in their courtroom battles. Instead, as at Rosenman, he found older lawyers not willing to let go of their clients. For the most part, Dreier and his group were obliged to find their own clients, which was difficult.

Dreier did manage to snag one large fish, a medium-size Wall Street firm named Wertheim Schroder & Company, which hired him in 1991 to sue Avon, the consumer-products giant. It was a complex securities case involving the disputed redemption price of some Avon preferred stock, and Dreier plunged into it with zeal, eventually persuading a New York judge to make it a class action, meaning Dreier was named to represent all the preferred holders. If he could win the suit, Dreier thought, the damages might run into the hundreds of millions of dollars. His own payday could easily run into the tens of millions.

But it was not to be. Dreier’s frustrations with Fulbright management had been building for several years when, in 1994, Wertheim was purchased by a British investment bank, Schroders P.L.C. To Dreier’s dismay, executives at Schroders had no interest in pursuing the Avon litigation. Fulbright’s management committee in Houston, hoping to keep the British bank as a client, agreed and told Dreier to drop the lawsuit. Dreier, unwilling to surrender a case he felt could make him very rich, angrily refused. When Fulbright insisted, Dreier asked the case judge to replace him, thus embarrassing both Fulbright and Schroders, which quickly backed off. Instead, his bosses ordered Dreier to settle the case for a nominal sum. A settlement was reached, but Dreier opposed it in court, at which point Fulbright tried to push him aside and named another attorney to help run the case.

It was the final straw. In March 1995, Dreier pulled a Jerry Maguire, sending a long resignation memo to Houston and taking his one piece of major litigation, the Avon lawsuit, with him. He joined a tiny law firm, Duker & Barrett, to pursue the case. The three lawyers didn’t get along, however, and Dreier left within a year, determined now to go it alone. “I saw a small firm wasn’t that hard to run,” Dreier says. “I thought I could do it myself.” (Ironically, Duker’s founding partner, William Duker, would later plead guilty to fraud for overbilling the U.S. government $1.4 million; he received 33 months in prison.)

Striking out on his own, Dreier rented a small office suite in Rockefeller Center and hired a few associates. Shortly after, in 1996, he agreed to partner with a friend of his brother-in-law’s, Neil Baritz, who practiced in Boca Raton, Florida. Their new firm, Dreier & Baritz, muddled along for several years with little distinction; Dreier argued a string of cases for various small businesses, and for a time he felt content. “I was much happier,” Dreier says. “I loved being my own boss. For the first time I felt like I was doing something meaningful.”

Running his own firm, however, presented a host of new chal­lenges, chiefly the pressure of luring clients. That meant entertaining, and Dreier quickly realized that prospective clients judged him in large part not on his legal talent but on the trappings of his success. He moved his family into a duplex on 76th Street, then into a far larger apartment on 58th Street, which he rented because he couldn’t afford to buy it. He spent nearly $1 million on renovations, then thousands more buying art and furnishings. In 1998 he moved his offices to 499 Park Avenue, designed by I. M. Pei.

“I needed to give people the idea I was doing very well,” he says. “That was the first step in a pattern toward living above my means.”

His new surroundings, in fact, soon drove Dreier into debt. The only way to get out, he realized, was to expand his firm and its revenues. Neil Baritz had a friend in Oklahoma City named William Federman, and Dreier, impressed with Federman’s practice, lured him into their partnership. The new firm, Dreier, Baritz & Federman, had 20 lawyers in New York, Boca Raton, and Oklahoma, and Dreier, as lead partner, used it to launch a series of new class-action securities lawsuits, similar to the strategy he was employing in the Avon case, which was still dragging on.

By 2000, after two full years, the expanded firm was having “modest success,” Dreier says. “We were paying the bills.” Dreier turned 50 that year, a point when many men assess their lives. As he took stock, Dreier began to realize he hadn’t fulfilled the potential so many had seen in him. Friends from Harvard were heading giant firms and bringing in multi-million-dollar judgments. It was depressing that, after all those years as a golden boy, Dreier was still mired in a small firm, still hustling to pay his bills. It was then that 9/11 hit, bringing on the dark days when Dreier’s world began to collapse.

Middle-Age Crazy

Dreier watched the towers fall from his Park Avenue office. He doesn’t blame any of what happened on the events of that day, but he does trace the source of almost all his ensuing difficulties to the months after 9/11. “I had a very emotional response to that,” he says. “I remember feeling an emptiness I couldn’t shake in the last quarter of ’01, feeling emotionally drained and looking to find myself.”

Dreier won’t say it, but in some inescapable way he found the fiery fall of the Twin Towers a metaphor for his career, for his entire life. Part of it was the conclusion of his 10-year fight against Avon, which finally ended in November 2001; only later would a judge rule against Dreier, sending the biggest case of his life spiraling down the drain. But it was more than that. He and Elisa had been growing apart. They began to argue more. Dreier won’t explain what happened, only that he was to blame, saying, “I wasn’t attentive enough to my family.” Elisa filed for divorce in January 2002. This, in turn, exacerbated simmering tensions with Dreier’s Florida partner, Neil Baritz; the wives were close. Dreier and Baritz agreed to split up. William Federman left as well, after objecting not only to Dreier’s penchant for secrecy—he says he never received the monthly financial statements he was promised—but also to the exorbitant sums Dreier had spent on their Park Avenue offices.

All this sent Dreier into an emotional tailspin. “I was very distraught,” he says. “I was very disappointed in my life. I felt my career and my marriage were over. I was 52 and [I felt] maybe life was passing me by I felt like I was a failure.” His feelings of despair were deepened by his keen, lifelong sense of entitlement, a hard-core belief that he was destined to achieve great things.

And now, suddenly, he realized he hadn’t. Worse, for the first time since early adulthood he was alone. “I didn’t go into therapy,” Dreier says, “though I should have. It might have helped to have someone to talk to, to make me stay grounded.” He pauses for a long moment. “I thought I was too smart, I was too confident,” he says finally. “You can lose your way a little bit. It was all my fault. I didn’t have a therapist, a wife, or a friend. I didn’t have anyone I could talk to. I don’t do that. I kept everything inside.”

There have been rumors that Dreier engaged in a man’s typical divorce-era vices—alcohol, women, even recreational drugs—but he waves it all away. His only vice, he insists, was work, but it couldn’t lift the gloom. For months he brooded over the wreckage of his life. His epiphany, Dreier remembers, came in the summer of 2003, during a long walk he took on the beach near his vacation home, in Westhampton Beach, New York. He experienced a moment of clarity, he says, in which he saw the path he needed to take; unfortunately, it was a path that would lead to his downfall.

It happened one day when he found himself staring at a palatial beachfront home. His own house was inland. He had always wanted one right on the beach. It was at that moment, Dreier says, that he came to two conclusions. He would buy himself a big house on the beach. And he would get the money by dramatically expanding his firm, now renamed Dreier L.L.P. Dreier knows how ridiculous this sounds, that his criminal behavior can be traced to his yearning for a better beach house.

“I wanted to just, well, appease myself,” he says. “Well, not appease myself. Gratify myself … I was very, very caught up in seeing the criteria of success in terms of professional and financial achievement, which I think was a big part of the problem. But I thought it would make me happy. And I wanted to be happy again.”

He returned to his Park Avenue office that fall determined to lure teams of all-star lawyers to Dreier L.L.P. Each would get a guaranteed salary, plus a bonus based on performance. But unlike other major U.S. firms, Dreier L.L.P. would not be a partnership. Dreier himself would own it all.

The plan looked promising on paper, but in practice there was one major problem. “It required a lot of cash,” Dreier admits. Each lawyer had to be paid up front, and as more came on board Dreier was obliged to lease an entire new floor of offices, complete with furniture and computers. Every penny had to come from his own pocket—money, needless to say, that he simply didn’t have. In fact, given the support he was required to pay his wife, he was already living far beyond his means. He had tried borrowing from banks, but “the banks all turned me down,” he says. “I had no assets. No credit history.” To begin his expansion, he had resorted to borrowing money from factors, firms willing to lend against his receivables—but at steep interest rates. “The factors,” Dreier says today, “were just killing me.”

Still, within a year, Dreier managed to bring almost 40 new attorneys into his firm, including an entire group or two, such as the four-lawyer wealth-advisory practice he snagged from Kaye Scholer. An essential part of the recruiting process, at least in Dreier’s mind, remained draping his life in the trappings of success. He had moved into a large rental on 57th Street after the separation and, as before, plowed nearly $1 million into a renovation. “Lawyers are very risk-averse,” he says. “They want to see someone who is very successful already. That was key. The problem was, I had to succeed immediately, or at least present the appearance I was succeeding.”

Easy Money

It was during this period, in the first half of 2004, that he began considering, as he puts it, “crossing the line” into illegal behavior, into fraud. “I was [still] very unhappy,” he says. “I was really desperate for a solution. I wanted to have more success in my life. There was that desperate component for me that made it easier to cross the line. The second part of it was an irrational overconfidence in myself. I had always been able to will myself through problems.”

Dreier says he can’t remember the moment he actually began considering fraud. But he acknowledges the decision was made easier by a long track rec­ord of what he calls “cutting corners.” As he acknowledges, “Yeah, I took advantage of expense accounts, statements on tax returns, that kind of thing. You know, I discovered once you cross a gray line it’s much easier to cross a black line.” And once he did begin thinking about fraud, he rationalized it as a onetime event that was necessary to fuel his expansion plans. “I thought I could do what I had to do, and get out of it relatively quickly,” he explains. “How much did I struggle with the ethical issue? I’d like to say I have a clear recollection of going through some great ethical analysis and agonizing over it. But I don’t believe I did. I should have. I just don’t remember that kind of angst. I don’t.”

If he was to become a thief, Dreier reasoned, his target was obvious: hedge funds. It was 2004, and every dinner party he attended seemed to be thronged with young hedge-fund billionaires eager to throw around investment money. “I had to come up with some quote-unquote great idea for a hedge fund,” Dreier remembers. “I couldn’t sell anything tangible. It had to be a financial instrument at some level to sell to a hedge fund. So I came up with the idea of selling debt.”

He would sell an IOU, a one-year note with an interest rate of 8 or 9 percent. But it would need to come from a bogus issuer. No hedge fund would invest in Dreier L.L.P. itself. The issuer needed to be an attractive firm, something to excite a hedge fund. In a perfect world, the issuer should be exceedingly private, someone it would be difficult to ask questions of, the better to conceal his scheme. The more Dreier thought it over, the more obvious it was who the putative issuer of his fake debt had to be: his best client, Sheldon Solow.

Well known for building 9 West 57th Street, the office tower where Henry Kravis and Ross Johnson squabbled throughout Barbarians at the Gate, Solow is a cantankerous, 81-year-old Brooklyn-born developer renowned in Manhattan real-estate circles for all manner of legal wrangling. And he has plenty of money to wrangle with: in 2008, Forbes named him the world’s 605th-richest man, with a net worth estimated at $2 billion. Dreier met Solow in the mid-1990s through a family friend, and argued his first case for him several years later.

Solow became Dreier’s dream client, a deep-pocketed billionaire whose appetite for corporate combat meant a string of big-money assignments. Wherever Solow went into battle, Dreier led the charge. In 1998, when Solow became embroiled in a nasty tussle with Hard Rock Café chain co-founder Peter Morton over a Hamptons mansion they both sought to buy, Dreier sued Morton in state court, lost, appealed the verdict, and lost, then filed two federal lawsuits, losing both. When Dreier filed a third federal lawsuit, a judge named Loretta Preska dismissed it, saying that Solow “had so many bites at the apple, [he] has swallowed the core.” Dreier and Solow appealed, but at that point the upper court lost all patience, fining both men for filing a frivolous action.

Then there was the time in 2005 when Solow had Dreier sue the owners of 380 Madison Avenue, alleging a conspiracy to inflate the rent Solow was paying to them. During oral arguments, the defendants’ attorney, Jerome Katz, then of Chadbourne & Park, marveled at Dreier’s ability to make his implausible conspiracy theory sound coherent and reasonable. “This guy is a combination of great intellect and complete sleaze; he is very clever, very smooth, very agile, a high-I.Q. guy,” Katz says. “He is a guy who, in my case, drafted a complaint that was extremely clever but based on a pure fantasy, where he concocted this alleged conspiracy that just didn’t exist. He would speak in these sentences that were silky smooth, but his argument made absolutely no sense.”

The judge agreed wholeheartedly, throwing out the case. Katz then asked the court to impose the maximum sanction against both Dreier and Solow, forcing them to pay the defendants’ legal fees. “I don’t believe in my entire career I had ever made a motion for legal fees, and I’ve been practicing law for 34 years,” Katz says. The judge consented to the unusual order. Four years later, thanks to a blizzard of legal protests from Dreier, Katz is still trying to collect. (Sheldon Solow did not respond to requests for comment.)

A third case involving Dreier and Solow suggests behavior even more questionable. Its pivot was a long-running feud between Solow and another prominent Manhattan developer, Peter Kalikow. The incident began in February 2004, when Kalikow opened both the New York Post and The New York Times and, to his dismay, found large, bogus legal notices listing more than 400 creditors from a bankruptcy he had endured more than a dec­ade earlier, in 1991. The ads suggested that the bankruptcy was somehow ongoing and, worse, that Kalikow had understated his assets. It concluded, “You may have additional rights of recovery based upon a failure by the debtors to make truthful disclosure.”

Kalikow was incensed; the ads were utterly untrue. He was convinced that someone had placed them to humiliate him personally. Seeking to find out who, he turned to Stanley Arkin, a crafty New York attorney who specializes in ferreting out corporate espionage and all kinds of international intrigues; it was Arkin who famously built the case that American Express had hired private detectives to plant articles defaming the late international banker Edmond Safra, a story I told in a 1992 book. In the intervening years Arkin has become his own mini-conglomerate, forming an intelligence agency, Arkin Group, run by a former top official at the Central Intelligence Agency.

It took Arkin and his men barely a week to identify the secret hand behind the strange ads. At the bottom of the ads was a company name, Evergence Capital Advisors; a check of Florida rec­ords indicated Evergence was a dissolved corporation formerly headed by someone named Kosta Kovachev. A cross-check of rec­ords revealed that Kovachev was the target of an S.E.C. lawsuit involving some kind of time-share scam; his attorney was listed as Marc Dreier. Even more telling, a telephone number on the ads was answered at Dreier’s office.

Kalikow wasn’t surprised; he and Solow had been squabbling for years, ever since Kali­kow had repaid a loan from Solow earlier than Solow had hoped, leaving Solow irked at the lost income. Once Dreier was linked to the ads, Kalikow sued, drawing both Solow and Dreier into a series of court pleadings and depositions in which Dreier was forced to admit the entire scheme. The presiding judge, Burton R. Lifland, ruled firmly in Kalikow’s favor, declaring Dreier’s actions “somewhat sleazy,” then reached for a thesaurus to add a few more choice adjectives, including “tacky, shabby, base, low, malicious, petty, nasty [and] unsavory.” Judge Lifland ordered Solow to once again pay his opponent’s court costs, then went a step further, suggesting that Kali­kow explore filing some sort of action against Dreier before “professional or legal tribunals that govern professional conduct.”

His work for Solow, including the sanctions and the embarrassing Kalikow case, damaged Dreier’s reputation and left him deeply resentful. Though he won’t go into details, it’s clear the relationship with Solow was irrevocably damaged. During our talks, Dreier’s face reddens as he discusses formulating his revenge on Solow.

“You rationalize your behavior,” he says. “Mr. Solow is a difficult client whom I had served with enormous hours, with enormous stress and sacrifice. I felt, for good reason, underappreciated. I felt a little victimized. I had gone out on a limb for him, and I felt like he cut off the limb.” For a moment it appears Dreier will lose his composure. “That’s childish [to say]; it doesn’t justify anything,” he goes on. “But at the time, I didn’t believe I was being treated fairly.” He takes a deep breath. “I had a good relationship with Mr. Solow. I had a lot of affection for Mr. Solow. Obviously, I exploited that. I betrayed Mr. Solow That is a terrible thing to do.”

The scam, once it began, wasn’t that hard to pull off. Alone at his office computer, Dreier opened an Excel spreadsheet and began constructing a fake Solow Realty financial statement he could show to a hedge fund. “It wasn’t easy,” he says. “I don’t have a financial background. I would find financial statements of similar firms and extrapolate from them.” He knew Solow’s auditor and placed the fake financial statements under its letterhead. In another file, he drafted the note he would sell. He decided it would be in the amount of $20 million. Through a friend, Dreier offered to sell the note to a big Connecticut hedge fund named Amaranth, run by a trader named Nicholas Maounis. (The fund later failed spectacularly after a bad bet on natural-gas futures in 2006.) Dreier explained that Solow Realty needed the $20 million to expand. To his mild surprise, the transaction went off without a hitch.

“I don’t recall how I identified the first fund, but it was common knowledge they had a very big appetite,” Dreier says with a sigh. “I mean, it was easier than you might think. I had the impression the hedge funds were under a mandate: they had money, they had to invest it. I said I was representing Mr. Solow. All the meetings [with Amaranth] were either in their office or mine.”

And like that Dreier walked off with $20 million. He used it to hire more lawyers, build out more office space, and buy the beachfront home he had dreamed of, a sprawling mansion in the Hamptons town of Quogue. The problem was, once Dreier got a taste of the good life, he wanted more. The law firm’s growth, in particular, he found intoxicating. For years he had supervised barely a dozen lawyers. By the end of 2004 he had close to 50, and with their healthy new salaries, these new attorneys all but worshipped him. “Meeting him at his office, it was like seeing the Wizard of Oz,” marvels one Dreier client. “Everyone was so deferential, just kowtowing to him like he was God—he could do no wrong. Because, I guess, he was making them all rich.”

After that first $20 million, Dreier quickly sold a series of additional phony notes in amounts ranging from $40 million to $60 million, eventually totaling roughly $200 million. He kept track of the sales in a series of small black notebooks. “The initial misappropriation proved to be inadequate to make the firm what I wanted,” Dreier notes dryly. “So I did it again. I had one leg into building this law firm, you know, and I couldn’t bring myself to take that leg out. It was a little like quicksand. So I kept doing it.”

Dreier pauses in his retelling, his eyes searching the skyline outside his apartment windows. “Each time I always thought it was the last one,” he says. “I never thought I’d have to do it again.”

Catch Me if You Can

Practically overnight, the new money created the life of Dreier’s dreams. He added a second waterfront home in Quogue. He drove an Aston-Martin for fun, while a chauffeur ferried him around Manhattan in a Mercedes 500 for work. He laid out $10.4 million for the apartment overlooking Le Cirque. The pièce de résistance was Seascape, the $18 million yacht he kept docked in St. Martin; it came with a crew of 10 and a Jacuzzi. But the lion’s share of the illegal cash went into the law firm. By the end of 2006, Dreier L.L.P. had again doubled in size, to more than 100 lawyers. By the end of 2007 there were 175. His offices expanded in tandem, eventually taking up 11 floors at 499 Park Avenue. Dreier went on an art-buying spree, shelling out $40 million to fill the firm’s walls with Hockneys, Warhols, and Picassos. Some clients were impressed; others weren’t. “These were major pieces of art,” recalls one client. “You had to ask yourself, ‘Who would spend $10 million on a piece of art and hang it in the receptionist area?’ That’s always a bad sign, when they spend the money glorifying themselves.”

In Southern California, beginning in 2006, Dreier hired two large groups of attorneys, more than 50 individuals in all. Mostly entertainment lawyers and litigators, they brought with them a string of celebrity clients, including Jay Leno, the Olsen twins, Rob Lowe, Andy Pettitte of the New York Yankees, singer Diana Krall, and the band Wilco. Dreier’s start-up costs were enormous: a number of lawyers worked with guaranteed salaries of $1 million or more. To house them, Dreier rented and renovated office space in the Century City skyscraper featured in the movie Die Hard—the lease alone cost him an estimated $300,000 a month.

Dreier began spending a week every month in Los Angeles, where, as in New York, he spent heavily to impress prospective clients. He paid $180,000 to play golf as a member at the Brentwood Country Club, rented a condominium on Ocean Drive in Santa Monica, then opened a branch of a sushi restaurant called Tengu nearby. When in L.A., Dreier could be found most nights there, surrounded by attractive young women and potential clients.

Within the legal community, Dreier was viewed as a rising star. He told anyone who would listen that Dreier L.L.P. was a new kind of law firm, one where lawyers could work with freedom, unburdened by old-school bureaucracy and administration, all of which Dreier handled himself. In a 2007 article for The National Law Journal, Dreier argued that the “Dreier Model,” as he christened it, freed attorneys from petty bickering over profits and allowed them to operate as true legal entrepreneurs. It certainly appeared to work. Dreier L.L.P.’s functions were glittering. In 2007, he and Michael Strahan, of the New York Giants, co-hosted a charity golf tournament for which William Shatner served as M.C. and Diana Ross was the entertainment. Alicia Keys sang the next year. One of the firm’s Christmas parties was held at the Waldorf-Astoria, where Dreier danced wildly to the song “Shout,” from Animal House. At a firm party at his Quogue beach house a plane flew overhead trailing a banner that said, dreier lawyers rock.

Through it all, Dreier kept quietly selling bogus notes. During the first three years of his scheme, in fact, from 2004 until the summer of 2007, he found it simple to keep going. Almost every time a note came due, the hedge fund in question would simply renew it for another year, usually with a slightly higher interest rate. No one ever asked to meet Solow or any of his executives; they simply accepted that Dreier was operating on their behalf.

The trouble began in mid-2006, when the housing market started to weaken. By the fall there were rumblings that Wall Street firms would begin taking losses. Those worries blossomed into something like panic the following June, when two massive Bear Stearns hedge funds imploded, nearly bankrupting Bear. At first, Dreier’s hedge funds only began rethinking their decisions to renew his notes. With several, Dreier secured renewals by offering better interest rates, as high as 11 or 12 percent. But by early 2008, even that wasn’t enough. For the first time, several funds refused to renew and demanded their money back. Dreier managed to repay a few by selling more notes to other funds, the classic Ponzi tactic. He kept still others on board by selling new notes at a steep discount; these new notes not only offered 12 percent interest but cost 30 percent less.

Wall Street’s “credit crunch,” however, deepened all that winter, eventually leading to the collapse of Bear Stearns, in March 2008. After that, almost every hedge fund refused to renew; all they wanted was their money back. For the first time, Dreier began to sweat. By that summer, he was facing a full-blown crisis. Almost all his outstanding notes were coming due that fall. During walks on the beach at Quogue, he confronted the unthinkable: $48 million of notes due in September, another $15 million in November, a whopping $100 million in December, plus $60 million in January 2009. All told, he would need almost $225 million to cover these redemptions.

“Obviously,” Dreier observes without a hint of irony, “I had put myself in a ridiculous predicament.”

For the first time, he began to think he might not, as he puts it, “pull out of this.” Still, he clung to hope. After all, he had raised this much before. He had a line on some Persian Gulf investors who might inject awesome sums. And Dreier L.L.P. was expecting a good year in 2009; its profits might yet make a dent in what he owed.

Dreier began his sales push after Labor Day. It was rough going. No one wanted to buy anything, only sell. In desperation, Dreier resorted to offering notes due in less than a year, in some cases as little as eight months. He was digging himself quite a hole: a 12 percent note, sold at a steeply discounted price, to be repaid the following May. He managed to sell a small note, for $13.5 million, to a hedge fund named Verition, but the big catch was the $100 million note he sold to a fund named Elliott Associates, a $10 billion fund run by a lawyer turned money manager named Paul Singer. All told, the two sales raised half the money Dreier needed.

As it became harder to market his notes, Dreier found himself relying increasingly on the same hedge funds. By October, in fact, four held almost all his debt, roughly $100 million apiece: Fortress, one of America’s largest hedge funds; the new buyer, Elliott Associates; Eton Park Capital Management, run by 31-year-old wunderkind Eric Mindich, once the youngest partner in the history of Goldman Sachs; and GSO Capital Partners, a $25 billion hedge fund owned by the Blackstone Group. By October, GSO was the biggest headache. The firm had $115 million of notes, and it wanted its money back—right away.

Dreier, citing market conditions, pleaded for an extension until year-end. GSO executives reluctantly consented to a few weeks, but there was a catch. To grant the extension, they demanded to meet with top executives at Solow Realty. Unable to wriggle out of it, Dreier scheduled a meeting at Solow headquarters at 9 West 57th Street for October 15. It was at that point that, desperate to extend the note, he staged his most elaborate charade to date. To pull it off, he brought in the odd little man who had helped him before: Kosta Kovachev.

The son of Serb-born doctors, Kovachev, 57, was a Wall Street refugee who had graduated from Harvard Business School and begun his career at firms such as Morgan Stanley, but, during the 1990s, for whatever reason, spiraled downward through a series of increasingly obscure companies, eventually ending up selling time-shares in an alleged Missouri-based real-estate scam. He was sued by the S.E.C. and surrendered his broker’s license in 2003 while admitting no wrongdoing. Kovachev was a shadowy figure in Dreier’s life, a onetime client—Dreier says only that they met through a friend—with two ex-wives in Florida, six children, and a cell-phone number that rang at the Harvard Club. He wasn’t quite the Igor to Dreier’s Dr. Frankenstein, more a financial flunky. He had an electronic pass to Dreier L.L.P. and court papers indicate he was paid as much as $100,000 for his role in Dreier’s plan.

Dreier is maddeningly vague about Kovachev, who was also arrested last December; presumably he doesn’t want to undermine Kovachev’s defense. Kovachev did not respond to requests for comment, but from legal papers filed in the case, it appears he had carried out impersonations for Dreier before, at least once during a conference call with one of Dreier’s hedge funds. That day in the Solow conference room, however, Kovachev delivered his performance in person, easily convincing a team from GSO that he worked for Solow; afterward, Dreier got his brief extension. A top Solow executive, Steven M. Cherniak, has said he actually noticed the meeting going on—the conference room has glass walls—and later told associates he wondered what Dreier was doing. Dreier, however, visited Solow’s offices often enough that his unexplained appearance was shrugged off.

By the first week of November, it appeared Dreier had created some breathing space. That’s when things really began to fall apart.

Game Over

As Dreier pieced it together for me, this is how it started. The small fund to which he had sold a $13.5 million note, Verition, was looking for ways to reduce its exposure. Verition executives reached out to another fund, Whippoorwill Associates, based in suburban Westchester County, to see if it might be interested in buying half the note. Whippoorwill, in turn, contacted Solow Realty’s auditor, Berdon L.L.P., to obtain financial data. Berdon executives were confused; they didn’t know anything about any Solow Realty notes. They called Sheldon Solow himself, who didn’t either. A Berdon attorney named Thomas Manisero began investigating. One of the hedge funds turned over a Solow financial statement Dreier had supplied. It was clearly forged.

By the first week of November, both Manisero and several Solow executives, including Solow himself, suspected Dreier had committed fraud—a single act, but fraud nonetheless. Solow and Manisero telephoned Dreier and confronted him. “I tried to double-talk my way out of it, but I knew that would not work,” Dreier recalls. “They accused me. I didn’t acknowledge the extent of my wrongdoing. I acknowledged that what appeared to have happened had only happened once, with one small fund, and it had been rectified.” Dreier said he was deeply “ashamed,” and swore it would never happen again.

Neither Manisero nor Solow was satisfied, however. Manisero told Dreier that unless he could fully explain himself he was going to the authorities; Dreier assumed he would anyway. In fact, within days the U.S. Attorney’s Office in New York became involved.

“I knew in that first week of November that unless I got extremely lucky I was going to get caught,” Dreier says. He decided to do the only things he could: deny, delay, and obfuscate.

Just days later came a second shot across his bow. In concluding the Elliott deal, Dreier had given an Elliott executive a bogus e-mail address for Solow Realty—the address actually delivered any e-mail to Dreier’s computer. When the Elliott executive attempted to use the address, he apparently made a typing error and was obliged to phone Solow Realty directly, as Dreier learned, to his horror, when he found himself c.c.’d on the man’s e-mail exchanges with a Solow executive.

“From that point on, I knew I wouldn’t get out of it,” Dreier recalls. “I knew I couldn’t talk my way out of that second one.”

The clock was ticking. That same week Dreier flew to Dubai and Qatar, where he met with a group of Arab investors who he hoped might buy notes worth enough to bail him out. One evening, standing in the desert air, he finally began pondering what had once been unthinkable. Here he was, out of the country, with $100 million in cash. Why not run? Why not spend the rest of his days on some balmy Indian Ocean beach? For the moment, though, he just couldn’t. He returned to New York for a day, then jetted to St. Martin, where he sat on his yacht, brooding. If he wanted, he could simply have his captain sail for Venezuela. He might be safe there.

But he couldn’t do it. “I thought I would never see my kids,” Dreier recalls. “I thought that, even if I did, they would be in danger. I guess I thought that, even more humiliating than coming home to face the music, would be a long life as a fugitive. I thought that, at 58 years old, what was the point of living as a fugitive?”

For two more weeks Tom Manisero peppered Dreier with calls, demanding to know more about what he had done. Dreier says he assumed the authorities were recording Manisero’s calls. They were. On the Friday after Thanksgiving, he asked Manisero if there was some kind of settlement he could offer to make Solow whole. Prosecutors would later characterize this as an attempt to bribe Manisero, a contention Dreier firmly denies.

That same Friday, Dreier received more worrisome news. One of his attorneys, Norman Kinel, needed to retrieve $38.5 million from one of Dreier L.L.P.’s escrow accounts; the money belonged to a bankrupt client who needed it to repay creditors. But to Kinel’s surprise, less than half the money remained in the account. Dreier couldn’t tell him the truth, that he had stolen it. He promised to get back to Kinel on Monday. Suddenly Dreier was consumed with replacing that money. He phoned Elliott Associates, which agreed to buy a new $40 million note. For a few hours, Dreier thought he was safe. Then, later that same day, an Elliott executive called to say the firm was backing out of the deal; he didn’t say why, but Dreier thought they had become suspicious.

All that weekend Dreier frantically sought ways to replace the missing escrow funds. On Monday, December 1, he secured a commitment from Fortress for a new, $50 million note, this one to be “issued” by a firm whose name he had begun using, the Ontario Teachers’ Pension Plan, a massive, $100 billion fund based in Toronto that had once been a Dreier client. The new agreement, however, was struck with a different group inside Fortress, and this one insisted on signing the legal papers in a face-to-face meeting with an Ontario Teachers’ executive.

Dreier knew what this meant: he would need to impersonate the executive, at the fund’s offices in Toronto. That night Dreier telephoned Toronto and set up a meeting for the next day, Tuesday, with an Ontario Teachers’ attorney, a man I’ll call “Tom.” He told Fortress to have one of its people come to the pension fund’s offices to sign the papers. When the Fortress executive arrived, Dreier would need to be there, somehow masquerading as “Tom.”

It was a dicey proposition at best, but as Dreier’s private jet descended toward an Ontario commuter airport the next morning, he thought he could pull it off. Then, at the last moment, “Tom” telephoned and canceled their meeting. Dreier, fighting off panic, quickly set up a new meeting, this one with an Ontario Teachers’ attorney named Michael Padfield, whom he did not know. He took a limousine downtown to the shimmering glass Xerox Tower. Inside, he boarded an elevator to the Ontario Teachers’ third-floor offices, where he and Padfield held a quick meeting, ostensibly to discuss the sale of another bogus note; at one point, the two exchanged cards. Then Dreier asked if he might kill some time in a spare conference room. His jet back to New York was running late, he explained.

For the next hour or so, a receptionist watched as Dreier paced the pension fund’s lobby, obviously waiting for someone. This is where things got strange. At one point, a man emerged from the elevators and moved toward the receptionist’s desk. Before he could reach it, however, Dreier cut him off. The man was Howard Steinberg, the Fortress executive who had come to sign the note. He was to meet with Michael Padfield, the same attorney Dreier had just seen. Dreier introduced himself as Padfield, handed him Padfield’s business card, and guided Steinberg into the same conference room where he had been waiting.

Everything appeared to be going smoothly until Steinberg suddenly asked if Dreier knew “Tom” ’s extension—apparently the two men were acquainted. Dreier reluctantly read off the number, at which point Steinberg rose, asked for a moment, and stepped outside. Dreier realized he was about to call “Tom,” who of course knew nothing about the meeting or the note; if the two men spoke, it was all over. Dreier watched as Steinberg began dialing a phone in the lobby. As he did, Dreier yanked up a conference-room phone and, in a bid to somehow prevent the two from speaking, dialed “Tom” as well.

“He called the guy, I called the guy,” Dreier recalls with a sigh. “He beat me to it.”

He cut off his call, knowing the end was near. When Steinberg returned to the conference room, Dreier says, “I could see he was suspicious. It was the questions he asked me and the look he gave me. He asked several questions about personnel at Ontario Teachers’, which indicated he was suspicious.” Sensing the worst, Dreier hurriedly signed the legal papers, then excused himself for a moment. But instead of returning, he headed for the elevator and left the building.

After a few minutes, Steinberg emerged from the conference room.

“Was that Michael Padfield?” he asked the receptionist.

“No,” she said.

Dreier’s plane was waiting. He had just boarded when his phone rang. It was a Fortress executive, informing him there had been “some kind of problem” at Ontario Teachers’. The Fortress man, not knowing Dreier was in Canada, much less that he was behind the “problem,” explained what little he knew. Dreier feigned astonishment. Moments later, his phone rang a second time. This time it was Peter Briger Jr., Fortress’s co-chairman of the board. “We don’t know what’s going on,” Briger told Dreier. “But we think there’s some kind of impersonation going on.”

“I played dumb,” says Dreier, “and said I would look into it.” When Dreier concluded the call, his mind raced. At that point, 9 out of 10 men would have simply fled back to New York. For some reason, Dreier returned to his limo and had the driver take him back to the pension fund’s offices.

“I was 90 percent sure I would be caught when I went back,” he says. “I was not thinking clearly. I was desperate. Clearly, there was a part of me that just wanted this to be over. I knew I was defeated. I went back knowing I would probably never leave that building [a free man].”

Once he was back in the Ontario Teachers’ offices, an attorney asked him to wait in the conference room. By and by, security guards appeared and told him to wait for the police, who appeared not long after and arrested him. Dreier went without resistance.

There’s a Moral to Draw

It was over. Canadian authorities held Dreier for four days, then put him on a plane back to New York’s La Guardia Airport, where U.S. marshals took him into custody, just as Dreier suspected they would. He didn’t bother with denials for long. He would admit everything: four long years of fraud, 80 or more bogus notes, 13 hedge funds and four private investors, $380 million—everything. His glorious new life, the firm, “the Dreier Model”—it had all been built on lies. Within days, attorneys began resigning from Dreier L.L.P. At one point, Dreier’s 19-year-old son, Spencer, barged into a meeting there and attempted to rally the assembled lawyers to his father’s defense; he was hooted out of the room. Ten days after Dreier’s New York arrest the firm declared bankruptcy. By that point almost every attorney had left. Dreier L.L.P. simply imploded.

Dreier was tossed into a dark cell on the ninth floor of the Metropolitan Correctional Center New York, a federal holding pen in downtown Manhattan. It was the shock of his life: Dreier, in fact, has quite a lot to say about the “M.C.C.,” as it’s known. He and his cellmate, the triple murderer, had no electric light, no reading materials, no heat, and a broken toilet, which left the floor covered in urine. Each night Dreier shivered beneath a thin blanket while other inmates yelled and screamed “like it was an insane asylum,” he claims. He was allowed out of the cell for rooftop exercise once a day, at five a.m., for an hour. Meals were shoved through a slot. He showered twice a week, in cold water. “This was like Midnight Express,” Dreier says in dismay. “I mean, it’s beyond what people can imagine.” (An M.C.C. New York spokesman disputes Dreier’s account of his time there.)

It was certainly beyond anything Marc Dreier of Yale College and Harvard Law School had ever imagined. Finally, after eight days, he was released into the general population. Two months after that, following his indictment, a judge allowed him to return to his apartment under house arrest. During the period when we spoke, in April, Dreier was sleeping a lot, spending every available hour with his children, briefing lawyers tasked with sorting through the wreckage of Dreier L.L.P., and trying to come to grips with the end of life as he knew it.

“I expect to spend most of the rest of my life in prison,” he tells me. “I hope I don’t die there. I’ve been blessed with good genes, you know. My father died at 91. So I think I have a few years left. I will try to have a meaningful life in prison. It won’t be the life I anticipated. I won’t attend my daughter’s wedding. I will miss all the moments in life I assumed would be part of my life.”

“This is a particularly sad case,” Dreier’s lawyer, Gerald Lefcourt, says. “Marc Dreier had everything going for him and essentially threw it away. To his credit, he realized early on that it was no one’s fault but his own. When he went to prison, he was in many ways in a state of grace.”

During 25 years of writing about financiers, I have spoken to several on their way to prison. Dreier was by far the most philosophical, and while his critique of America’s material culture is no doubt self-serving, some of his final words were instructive.

“Many people,” he observed, “are caught up in the notion that success in life is measured in professional and financial achievements and material acquisitions, and it’s hard to step back from that and see the fallacy. You have to try and measure your life by the moments in your day. I see people my children’s age first coming into finance, the working world, as having to make basic choices about how to define happiness and success. Obviously, I made the wrong choices.